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Formula One fans rise: Hellmund vs. Circuit of the Americas in session, likely for a while

May 24, 2012

The legal battle surrounding the Circuit of the Americas continues to heat up, with the scheduled Formula One race in Austin just six months away. Photo by Circuit of the Americas

Judging from the bloody legal battle under way in Austin, Texas, between Circuit of the Americas principal Tavo Hellmund and his former business partners in the creation of the road-racing course, a good bet for sponsorship for the Formula One race--which is now less than six months away--might be the American Bar Association.

Hellmund has a legal team, the circuit partners have a legal team, the City of Austin and the State of Texas have legal teams, and all are participating in some aspect of the muddy litigation under way. There is a good chance that it will extend up to and past the drop of the green flag for the race in November.

The latest development came on Thursday. Hellmund is asking for the buyout and back salary that he says his contracts specified. Circuit of the Americas' position is that Hellmund violated the contracts. Hellmund sued, and the fight was on.

Many of the partnership and procedural documents were sealed, and the Austin American-Statesman requested access to them, based in part on the idea that taxpayer money could eventually be earmarked to help bolster the circuit's bottom line, largely through a special-event trust fund that pays the promoter a percentage of the extra tax dollars the event brings in. It has been used for events such as the Super Bowl.

To help get the project launched, Hellmund engineered a tentative agreement that the fund's projected percentage, approximately $25 million, would be advanced to the group, rather than paid well after the event. But as negotiations turned sour between Hellmund and his company, Full Throttle Productions, and the rest of Circuit of the Americas, nervous government officials withdrew that potential pay-it-forward policy, and--based on considerable taxpayer input and ancillary legal aspects--the fund itself appears in jeopardy. This was one of multiple developments that left the circuit scrambling for backers.

So, on Thursday, District Judge Scott Jenkins unsealed many of the records in question, which was considered a win by Hellmund's team. The documents outline financial participation in the project from Circuit of the Americas' major players, including Red McCombs, the legendary Texas businessman who has been one of the most active--and often successful--financiers across the state for decades. Earlier in the week, McCombs, whose financial stake in the $400 million project may be substantially smaller than originally suggested, held a press conference where the 84-year-old McCombs stressed his long-term commitment to the project.

Hellmund, who says he owns 20 percent of the project, reportedly the same as McCombs, has cited a contract that allows one of them to buy out the other. McCombs has declined to participate.

The court decision led to the inevitable battle of press releases. Circuit of the Americas' response, in part: “Circuit of The America's attorney Michael Whellan noted that, 'We believe the facts made public through today's filing strongly support our position that Mr. Hellmund's claims and accusation--and his misrepresentations to Circuit representatives and the public about his ability to assign Formula 1™ race contracts--only serve to undermine his case.

'We believe the tactics Mr. Hellmund and his legal team have employed to date are meant to purposely generate negative public sentiment about Circuit of The Americas in hopes of extracting a large settlement. Unfortunately, we do not expect these tactics to end anytime soon. Nonetheless, we are prepared to arbitrate this dispute as the parties have agreed to do in writing.'"

Hellmund legal team spokesman Eric Wetzel's response, directed at Bobby Epstein, the project's central financier: “If Bobby Epstein truly desires an efficient resolution of his dispute with Tavo Hellmund, as he now claims, he can simply honor the $18 million buyout agreement that he signed in September of 2011. If not, Tavo is prepared to amend his pleadings to include charges of fraud and other misdeeds, based on newly discovered evidence. We believe this evidence demonstrates that Mr. Epstein intended to force Tavo out of the F1 project from the beginning. As required by the September agreement signed by Mr. Epstein, these new claims will be litigated in the Travis County, Texas courts--not in a secretive arbitration proceeding.”

Bottom line: Hellmund wants his contract honored, and Circuit of the Americas wants it settled in private arbitration.

While the November Formula One race appears safe so long as Circuit of the Americas can finish construction on the track and the grounds that meets F1 inspection, the future of the announced MotoGP motorcycle race--the two-wheeled equivalent of Formula One, and a lynchpin of the circuit's original business plan---remains unclear. MotoGP can, for the dollars spent, return a higher percentage of investment than F1. But the current MotoGP contract is assigned to Hellmund, and whether or not he will assign it to Circuit of the Americas or take it elsewhere--a Mexican publication recently suggested that Hellmund may find another venue for the race, which probably would not be difficult--is still unresolved.

Aside from the Australian V8 Supercars event that supposedly is to run next season at the Circuit of the Americas--a series untested in the United States--the circuit has yet to sign any major motorsports series, such as NASCAR, IndyCar, Grand-Am or the American Le Mans Series. It seems likely that until the legal wrangling is resolved, major series might be wary of casting their lot with Circuit of the Americas.

It is getting close to crunch time for the circuit--the period during which general-admission tickets go on sale, likely at prices unfamiliar to many regional motorsports enthusiasts and certainly higher than the $30 general-admission tickets for Sunday's Indianapolis 500. The track and the team need to present a united, professional front as they try to attract fans and, presumably, sponsors, unless it's too late.

The track's preliminary parking plans have also come under criticism, especially from local landowners with vacant property expecting to be able to sell parking spots on their land offering walking-distance fan access to the track. Circuit of the Americas has suggested that a very limited number of on-site parking passes will be sold to owners of "Personal Seating Licenses," and all other attendees must arrive and leave on shuttle buses that will travel closed-down roads, and which presumably won't be free to fans unless they are underwritten.

Circuit of the Americas has a lot of work to do in a relatively short period--both on track construction and in convincing fans, potential sponsors and the motorsports community that they know how to stage a motorsports event, even though none of the top management team ever has. Certainly first-timer teething pains will be tolerated, even expected, but if the race and the race experience is substantially subpar, 2014 and beyond could make for some bleak seasons, as the New Jersey F1 race will offer an alternative for 2014, and rumors persist of a very high-profile Mexican Grand Prix by 2016.

According to Circuit of the Americas' own countdown clock posted on its Web site, it has 177 days.